Sandwich chain Subway to buy Middle East supplies in bulk

Marwan al Hamar, the development agent for Subway, outside the Crown Plaza branch, Dubai.

The fast food chain Subway has created a special corporation in the Middle East to negotiate bulk contracts with its suppliers on behalf of the region's more than 200 restaurants, in an attempt to cut costs.

Marwan al Hamar, the UAE development agent for Subway, said the Middle East Independent Purchasing Co-operative (MEIPC), which was established last May, is a non-profit organisation, with the sole purpose of dealing with the restaurant chain's suppliers, says.

The move is aimed at reducing overall costs by securing longer-term supply agreements and avoiding steep price rises for commodities such as flour.

"We can set the prices for six months, sometimes for a year or two, and that protects the franchisee from all the fluctuations in the costs." Mr al Hamar said.

It is a timely move, given the steep rise in worldwide commodity prices in the past six months. After reaching record-high prices in 2008 prices for foodstuffs slipped, according to the UN's Food and Agriculture Organisation.

Its index, which takes into account meat, dairy, cereals, oils and sugar, fell almost 35 per cent to 139 in February last year from 213.5 in June 2008.

Since then it has risen 42 per cent to 197.1 last month. The price of wheat, in particular, has surged because of drought in exporting countries and a ban on wheat exports by Russia.

The benchmark US wheat price averaged US$291 a tonne, 37 per cent higher than it was a year ago and 60 per cent higher than at the start of the season in July, the Food and Agriculture Organisation says.

"International prices of nearly all the commodities included in the index rose but in particular sugar, soybeans and coarse grains," it said in this month's global food price monitor report. Europe and North America have had their own purchasing co-operative for some time, but until now franchisees in the Middle East had to negotiate on their own or on a country-wide basis.

Mr al Hamar said he used to negotiate with suppliers on behalf of the 100 Subway shops in the UAE, but the new purchasing co-operative should be able to procure even better prices.

"Informally, we did it to the best of our abilities," he said. "Now we've got professional buyers that do this for a living."

There are now 250 Subway shops across the GCC region as well as others in Lebanon, Jordan and Egypt, but Mr al Hamar expects this number to reach 500 by 2015. In the UAE alone, the company aims to reach 200 stores in the next five years, he said.

It is a lofty target given that the population growth in the UAE has slowed. But Mr al Hamar is banking that the spending power of the UAE will grow over the next five years.

"If you look at the population growth in the past 10 years, the major part of that population growth came from labourers who were building all those beautiful buildings you are looking at," he said.

"Burj Khalifa had 12,000 people, at one point, building it. They're gone. Now we have replaced that 12,000 with maybe 1,000 people.

"You're putting in people who are probably going to be middle class, white-collar workers, who are going to have a decent income. And that's really going to bring up the UAE once that happens."